KNOW YOUR CUSTOMER

BIMALSHRESTHA’S QUERY

DEAR L/C EXPERTS,

I'M IMPORTING ELECTRIC MOTORS FROM CHINA.GENERALLY THE INNER COIL OF THE MOTOR IS COPPER.BUT NOW CHINA AND OTHER COUNTRY HAS STARTED MAKING MOTORS OF ALUMINIUM WIRE AS WELL.PLZ NOTE THAT ALUMINIUM WIRE MOTORS DON,T WORK PROPERLY.

I WANT MY MOTORS TO BE OF COPPER COIL.BUT I FEAR IF THEY SEND ME ALUMINIUM COIL MOTORS I WILL LOSS LOT. SO IN ORDER TO AVOID THAT CHANCE AND FRAUD BY THE COMPANY WHAT CLAUSE/TERMS I SHALL PUT IN L/C SO THAT I CAN ENSURE MY ELETRIC MOTORS TO BE OF COPPER COIL.

ALSO NOTE THAT I WANT THE CLAUSE STRONG SO THAT IF THE COMPANY CHEATED TOO I CAN PUNISH THEM AS WELL.HOPE TO GET GOOD REPLY.

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MR. OLD MAN’S COMMENT
Know Your Customer

Dear Bimalshrestha,

Please note that in L/C transactions banks deal with documents and not with goods, services or performance to which the documents may relate (UCP 600 Article 5). That is to say, if the documents presented are complying, the issuing bank is obligated to honour though the goods shipped are not as described as in the L/C or in the invoice. And the applicant is obligated to reimburse the issuing bank once the payment has been made by the issuing bank properly.

However, to help reduce the risk of receipt of the goods of bad quality, the following measures may be taken:

(i) An inspection certificate to be issued by a prestigious independent inspection company is required for negotiation/payment; or
(ii) An inspection cerificate issued or countersigned by the applicant’s representative in the beneficiary’s country is required for negotiation/payment.
(This is normally applicable to seaproduct, coffee, woods transctions… and when the buyer has a a representive or a representative office located in the seller’s country).
(iii) A pay back guarantee issued by the beneficiary’s bank is required for negotiation or payment.
(The guarantor’s payment obligation is triggered upon its receipt of the applicant’s demand together with an inspection certificate issued by an independent inspection company certifying that the goods shipped are not as described as in the L/C or in the contract. This is normally used for aqua products exported to USA and North American.

There are more other measures but they are not encouraged as the abusing of such measures may cause erosion to the abstract nature of the L/C.

The most important measure you should take is KYC (Know Your Customer).

Best regards,
Nguyen Huu Duc …